QUECTEL WIRELESS(603236)：REVENUE AND PROFIT GROW RAPIDLY DESPITE COVID-19;PROFITABILITY CONTINUES IMPROVING

1H22 results in line with our expectation
Quectel Wireless (Quectel) announced that revenue rose 54.99% YoY in 1H22 to Rmb6.69bn, net profit attributable to shareholders increased 107.32% YoY to Rmb277mn, and recurring net profit grew 111.52% YoY to Rmb255mn. The 1H22 results were in line with our forecast. Revenue rose 48% YoY in 2Q22 (18.75% QoQ) to Rmb3.63bn, attributable net profit rose 109.86% YoY (23.85% QoQ) to Rmb153mn, and recurring net profit grew 111.63% YoY (41% QoQ) to Rmb149mn. Revenue and earnings continued increasing in 2Q22, despite the resurgence of COVID-19.
Profitability: Gross margin (GM) rose 2.5ppt YoY in 2Q22 to 19.6% (1.4ppt QoQ), due to the tightening of supply chains, an improved product mix, and moves to expand the overseas businesses. The selling, G&A, and R&D expense ratios came in at 2.9% (up 0.1ppt YoY), 1.8% (down 0.6ppt YoY), and 8.4% (down1.5ppt YoY). We think that the firm will continue improving profitability, as: 1) revenue increases; 2) the firm moves to sell additional products via existing distribution channels; and 3) the increased use of R&D results pay off; and 4) economies of scale become more notable.
Trends to watch
Telecommunication module market continues to grow rapidly; overseas revenue increases. ABI Research estimates that the global shipments of cellular modules will increase to 1.24bn units in 2027 from 378mn units in 2021, implying a CAGR of 22% over 2021-2027. We believe that Quectel will benefit from the rapid growth of the cellular module market, as the company has gained a leading position in this market and it continues to improve its 5G products, in-car modules, and its lower power, wide-area (LPWA) products.
In-car modules: Quectel is set to start mass-producing 5G NR+C-V2X vehicle-grade modules. Its smart cockpit module AG855G can be utilized in Android and QNX operating systems to support development of smart cockpits. Its Qualcomm 8155 chip platform-based vehicle-grade modules won BYD's tender for smart cockpits, according to Quetel’s corporate filings in 1H22.
5G modules: Quectel continues to roll out 5G products. It was one of the first companies to deliver 5G R16 modules.
Global business: In 1H22, the firm launched R&D centers in two new locations - Wuhan and Penang, Malaysia. Revenue of the overseas business reached Rmb3.49bn, representing more than 50% of total revenue at the company.
New businesses related to telecommunication modules to become second growth engine. Quectel is moving to expand its antenna, internet of things-based (IoT) cloud platform, original design manufacturer (ODM), and smart city-related digital integration businesses. The company sells antennas via existing distribution channels for modules. Its antenna and module products can help customers reduce their product development and launch periods. In 1H22, the firm became a potential supplier of in-car antennas for multiple world-renowned automakers. Its ODM team hires nearly 300 engineers with extensive experience in R&D, testing and manufacturing. We think the firm's enriching its telecommunication-module product line will likely boost its revenue growth.
Financials and valuation
We keep our 2022 and 2023 earnings forecasts. The stock is trading at 47.0x 2022e and 32.0x 2023e P/E. We maintain an OUTPERFORM rating and our target price of Rmb166.15. Our TP implies 48.6x 2022e and 33.1x 2023e P/E, offering 4% upside.
Risks
Competition intensifies; shortage of raw materials continues; development of internet of vehicles disappoints.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。